Issue link: http://read.dmtmag.com/i/759225
I DA U N I V E R S A L N ove m b e r - D e ce m b e r 2 0 1 6 72 LEGAL LINE Continued from page 11 vendors, the pain will certainly be felt in the supply chain with downward price pressure, reduced orders and, most critically, pressure on Tier 1 vendors to shut down or shelve any a ermarket sales or plans. is is a double-edged sword for our industry. e latter suggests anti- competitive conduct; however, it can aff ord opportunities to fi ll the gaps le by Tier 1 OEM suppliers withdrawing from a ermarket business. It can also squeeze distributors who may have prospered from sales of products sourced from "OEM" Tier 1 a ermarket parts "divisions" that are leaving the a ermarket under OEM pressures. In short, in a shrinking market, don't sell harder and price-sharper; just get rid of the competition, if possible. e ValuePart situation is more problematic, but indeed instructive. Public records from the bankruptcy fi ling show clearly how a large enter- prise with decades of market and economic momentum can stumble, leaving suppliers, lenders and collaborators in limbo. ere are no ready answers until the Court sorts things out for both the trade creditors and secured lenders. What are the possible lessons in this new world? First, watching the big boys like Cat and its customers can be risky, but useful. ey do make bad bets, and they are usually epic. And, second, for the 10th time in this column, know and watch your customers like a hawk. e usual lessons for all are there: 1. Don't let any customer get too far into the weeds. e usual cut-off point is about 90 days for sales. A er that, the dreaded COD and/or CIA decisions need to be made. 2. Watch payment timing and organization. Which invoices are being paid earliest or latest? Are lump sum payments being made for partial payments to multiple invoices? 3. Look at inventory movement. Is there a change in buying habits? Are orders more fi ll-ins than stock orders? Orders out of the ordinary suggest other suppliers are in the mix, which could be used if your customer is at credit limits with you or has a critical money shortage. 4. Has the customer changed banks, lenders or both? A diff erent bank, a lockbox set up with a non-bank entity or payments coming from a new source could signal that your customer has moved down- market to hard-money lenders, a sign that all may not be well. 5. Always apply payments to the most recent invoices in inverse order. If the customer does go bankrupt, the Court could make you pay your customer back what you received in the 90 days before fi ling, and your customer could still get to keep the products you provided. 6. If a customer did give you a lien on products you shipped that are unpaid, fi nd out if there are any other liens from vendors and lenders, and where you are in the legal priority. Again, repossession is not out of the question. Simply put, if a customer does go under, you need to get informed and, if needed, involved. You may be able to repossess what you have shipped recently, if you were wise enough to pay the most recent invoices with any payments received or if you have the right lien fi led at the right time. Don't give up. Although trade/unsecured and lower- priority lien creditors usually feel the most pain in any bankruptcy, don't be passive. Get on the Internet, and get informed. ere is a federal court web portal, called PACER, which you can join and use. It tells the story of bankruptcy on a daily basis, so there is no excuse for being in the dark. In closing, my experi- ence has been that in any customer problem, patience is a virtue. In the meantime, get organized, informed and proactive, as few situations improve with time. Impor- tant legal deadlines may be missed as a result of not being informed and proac- tive. Indeed, one of our clients obtained 100 percent plus legal fees in a major bankruptcy by taking immediate and decisive action. As always, call your legal advisers. If they tell you to forget it, get a second opinion ASAP. ●